Abatement Performance Evaluation of Climate Policies in China- A - PowerPoint PPT Presentation

Prepared for the 21th AIM International Workshop, NIES, Tsukuba, JAPAN, 2015 Abatement Performance Evaluation of Climate Policies in China- A Study based on Integrated Assessment Model Lei Zhu , Pan Peng, Ying Fan Center for Energy and Environmental Policy Research Institute of Policy and Management Chinese Academy of Sciences

Content  Introduction  Model  Empirical study  Result and analysis  Intro to CEEP 2

Introduction • Countries need to adopt measures/policies to control domestic greenhouse gas (GHG) emission in response to global climate change • The implementation of climate policies has two sides Cost Benefit Externality internalization Climate damage definition Increasing energy cost 3 Climate damage offset Social output limit 3

Introduction • In general, climate policies evaluation has two aspects:  The relative cost advantage between  GDP loss different energy technologies may be Cost-Effectiveness adjusted  Consumption loss  Analysis (CEA) Increasing energy cost in the short term  Energy cost increase  Social output will be limited because of  Energy investment the shortage of energy supply increase  Substantial energy investment for promoting non-fossil energy technologies  Cost Cost-Benefit  （ van Consumption of final goods limits der Zwaan et al., 2002; Gerlagh et al., 2004, Analysis (CBA)  Benefit ： damage avoided 2006; Duan et al., 2014;Zhu et al., 2014 ） 4 (Source ： Manne et al., 1995)

Introduction  The global response to climate change has been influenced to a great extent by particular regions with large CO 2 emissions (e.g. the USA, the EU and China)  China, the world’s largest developing country, is the nation with the greatest CO 2 emission; approximately 92 million tons in 2012, which is around 26.72% of total global emission (BP, 2013). Therefore, the implementation of China’s climate policies can not only impact on domestic sustainable development, but can also have a direct effect on the performance of global actions on climate change Source ： BP ， wind 5

Introduction  Several difficulties exist in policy evaluation based on integrated general equilibrium models in single region:  Difficult to clearly consider and describe the characteristics of specific regional economic development, as well as energy use  In addition to the global temperature target, countries can adopt different types of domestic emission reduction measures, or policy mix  Due to the global greenhouse effect, climate damage in a specific region is directly influenced by the global CO2 emission, not by the region itself (Nordhaus and Boyer, 2000)  Our Work  To better analyze and evaluate abatement performance of a specific region in the medium- and long-term, we establish a modified single-region version of DEMETER model (DEMETER-R), to evaluate China’s climate policies 6

Model • Model: DEMETER-R • Climate module: multi-stratum carbon recycle system (Nordhaus and Boyer, • Subject: social welfare maximization 2000) Agent: consumer 、 fossil energy sector and • • Term: 2010-2150 non-fossil energy sector • Policies: fixed carbon tax, dynamic Technological change: AEEI 、 LBD 、 LBS • carbon tax, and mixed policy curve 7

Model ‘Burden’ • Definition of Regional Climate Loss The abatement ratio of China compared to the  Regional and Global Emission Ratio world will increase when its CO2 emission share Setting decreases compared to the world  Multi-stratum carbon recycle system Free-riding’ (Nordhaus and Boyer, 2000) Conversely, the abatement ratio of China will  Market and Non-Market Climate Loss decrease compared to the world when its CO2 (Manne et al., 1995) emission share increases compared to the world Definition Equation   = Θ ROW domestic Em Em Emission ratio t t t = ⋅ d D d TEMP Market damage factor 2 t 1 t = ⋅ + ⋅ − ⋅ d WTP d TEMP / (1 100 exp( 0.23 GDP / L ) 4 Non-market damage factor t 3 t t t = + ⋅ Damage ( MD WTP ) GDP Regional climate damage t t t t + ∑ + C k Y = GDP Damage M Output distribution t t t t k 8

Model • Abatement Performance Measure  Cost-Effectiveness Performance  Consumption Loss (CL)  GDP Loss (GL)  Energy Cost Increase (EC)  Energy Investment Increase (EI)  Cost-Benefit Performance  Consumption loss Cost Benefit Ratio (CBR)  GDP Loss CBR  Energy Cost Increase CBR  Energy Investment Increase CBR 9

Empirical Study • Scenario Setting In the BAU scenario, the emission share between the world and China was calculated by the estimate of CO 2 emission of global DEMETER and DEMETER-R under the BAU scenario 10

Result and analysis • Group 1 (Case 1-6) Normalization Exponentiation Standardization • The results show that the performance of dynamic carbon tax from the perspective of cost-effectiveness is clearly better than that of fixed carbon tax • But the implementation of fixed carbon tax will lead to a lower GL and EC cost-benefit ratio, which are interpreted as better cost- benefit efficiency of fixed carbon tax 11

Result and analysis • Group 2 (Case 7-10) Figure 3. Four types of cost effectiveness factor Figure 4. Four types of cost benefit efficiency factor under 450 ppmv under 450 ppmv • For these two policies, the four cost effectiveness factors declined with ‘burden’ and increased with ‘free- riding’ • However, the EC and EI cost-benefit efficiency factors increased with ‘burden’ and decreased with ‘free-riding’ 12

13 http://www.ceep.cas.cn/en/

Models in CEEP-CAS 1. MRCGE Model 地 投资 ฀投฀ 世界 ฀口 ฀本收入 模块 模块 区 贸易 – China multi-regional 模块 ฀口品 1 固定฀本形成 ฀存 出口 国外฀蓄 ฀移支付 resource-environment 出口 国内฀品 政府 政府消฀ ฀฀等 政府฀蓄 dynamic computational 碳排放 ฀฀出 模块 生产 general equilibrium 模块 关税 企฀税 生฀税 ฀移支付 增加฀ 中฀投入 排放฀ model (MRCGE) 企฀消฀ 直接税 企฀฀蓄 ฀฀ ฀本 能源 企业 – 30 Provinces, 42 ฀本收入 ฀移支付 模块 化石能源 ฀力 Sectors 居民消฀ ฀接税 居民฀蓄 煤 石油 天然气 焦炭 成品油 居民 – Energy Market, 模块 ฀฀收入 ฀本收入 ฀移支付 环境 Commodity Market, 碳排放 模块 Emission Trading Market 碳排放交易 其他地区 地区 2 区域间产品贸易 1. . . k 14 产品价值流 区域间碳交易 区域内碳交易

Models in CEEP-CAS 2. CE3METL Utility Net exports Labor Model – Long-term dynamic Consumption Investment optimal economic Economy Climate feedback development model, Capital Energy costs Energy inputs – including economic, energy, and Climate environment/climate NUC Emission limits modules Carbon-free ET HYD Energy – A policy logistic sub- LBD BIO module has been CO 2 Emissions introduced to energy WIND Gas Coal Oil module to describe OTHER the learning and Lower carbon ET diffusion among non- Fossil ET IGCC-CCS PC-CCS fossil and fossil PC energy technologies 15

Models in CEEP-CAS 3. ETS-Agent Model – A system for emission trading simulation. – Agents are set as the firms covered by ETS. The diversities among firms are reflected at the output, initial emission intensity, and emission abatement technology set. – Rules of agents: emission abatement strategy, allowance trading strategy, expectation of carbon price. 16

Models in CEEP-CAS 4. Bottom-up- based MACCs – Analyze the production process in energy-intensive sectors, complete a list of all technology options for emission reduction. – Normalize each technology under ‘Cost of Supply Curves (CSC)’ and rank them according to their cost for per unit energy saving/emission abatement. 17

100.00% Models in Beijing 90.00% Tianjin Accumlated share of emissions Shanghai 80.00% Chongqing CEEP-CAS 70.00% Hubei Guangdong(except Shenzhen) 60.00% Shenzhen 50.00% 5. Partial 40.00% 30.00% Equilibrium 20.00% 10.00% Analysis 0.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Accumulated share of firms – Based on the 0.6 8 0.25 4.3 7.9 4.25 0.5 7.8 0.2 analysis framework 7.7 4.2 0.4 7.6 0.15 4.15 7.5 of environmental 0.3 7.4 4.1 0.1 7.3 0.2 4.05 economics 7.2 0.05 7.1 4 0.1 7 0 3.95 – Modeling the 0 6.9 1 3 5 7 9 111315171921232527293133353739414345474951 1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154 163 172 181 50.00 40.00% allowance price （ Godal ） market share emission control allowance price （ Godal ） market share 48.00 behaviors of specific equilibrium allowance price(RMB/CO 2 ) 46.00 45.98 35.00% 45.74 firms/sectors covered 44.00 43.87 43.30 42.06 41.91 29.68% 41.77 Cost saving 42.00 30.00% 41.68 by ETS 40.12 40.00 26.65% 26.71% 26.36% 25.92% 25.48% 24.96% – Transparency and 38.00 25.00% 36.00 21.37% flexibility 34.00 20.00% 18.87% 32.00 30.00 15.00% 18 Case 1 Base case Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 All trade cost saving allowance price